The race for the chairmanship of the Federal Reserve is entering its final lap. And it’s basically come down to two front-runners. Ezra Klein reports that President Obama is most likely to nominate former Harvard president and Clinton-era Treasury secretary Larry Summers. That would be a blow to Janet Yellen, the current vice-chairman of the Fed’s Board of Governors. Yellen was seen, until recently, as the most likely candidate to succeed Ben Bernanke. But it appears she’s at risk of being beaten out.
There are lots of smart pieces about why Yellen would be a better Fed chair than Summers, and vice versa. But no one has yet mentioned the most obvious parallel for the decision President Obama faces — namely, he’s in Act II of a romantic comedy.
You know Act II. It’s the part in the movie where the lead actress must choose between her current boyfriend/husband/love interest — a cocky, successful jerk — and the shy, coy-but-charming friend she is just starting to realize that she’s in love with. She hasn’t given up on the jerk, but she’s weighing the stability and affection he gives her versus the new and mysterious attraction she feels toward her romantic wildcard.
In this scenario, President Obama is the female lead, and Summers is the current love interest. He’s got the reputation, the wit, and the credentials. He was Treasury secretary under Clinton, has protégés like Tim Geithner and Sheryl Sandberg, and is widely regarded as one of the most brilliant economists of his generation. Perhaps more importantly, he’s supremely well-connected in the West Wing — records show he’s been to the White House more than a dozen times since 2010, while Yellen has been only once. He’s had some notable black marks on his record — namely, the sexist remarks, Cornel West fight, and general unlikeable demeanor that got him drummed out of Harvard, the disastrous Clinton-era deregulation he presided over and too-small stimulus he sold to President Obama, and an interest-rate screwup that cost Harvard a billion dollars – but those mistakes haven’t tarnished his reputation measurably among the wise old men of Washington. He’s still seen as a rock star — the guy you want in your corner when a crisis occurs.
Yellen, on the other hand, is a tiny, soft-spoken 66-year-old. She’s not a household name, she doesn’t pal around with heads of state, and she’s never been portrayed in an Aaron Sorkin movie. But she’s also a brilliant, recognized economist who has been at Ben Bernanke’s right-hand through one of the most challenging periods in monetary policy history. Her public speeches betray a deep understanding of how important the Fed’s communication policy is, and as Cardiff Garcia points out, she’s been much more adept than Summers when it comes to predicting economic calamity ahead. Back in 2007, she was among the Fed’s only voices worrying about the danger of a housing collapse.
President Obama may be leaning toward Summers for obvious reasons — he knows Summers better than Yellen, Summers has a bigger Rolodex, and he’s “surprisingly excellent at cultivating people with real power,” as Felix Salmon says. Summer also has the chromosomal advantage — like every other Fed chair in U.S. history, he’s a man.
Like Adam Sandler’s character in The Wedding Singer, Josh Lucas’s character in Sweet Home Alabama, and Ryan Reynolds’s character in Just Friends, Yellen is an underdog. She doesn’t run in the same rarefied circles Summers does, and she’s not as experienced at the game of making and exploiting powerful friends as he is. She’s not as obviously brilliant as he is (mostly because, unlike Summers, she doesn’t remind people of her brilliance at regular intervals). But she’s a compelling candidate, especially given the specific tasks the Federal Reserve will face in the coming years. As it tapers its bond-buying programs and tries to draw back its easing efforts without spooking the markets, the Fed will need someone who knows its communications strategy inside and out, who won’t be ho-hum about the possibility of another crisis, and who will be able to entertain outside-the-box ideas to get the economy back on track. (Yellen has spoken about NGDP targeting, a policy change that would replace the Fed’s current inflation targets with one better linked to the health of the economy.) In a period like this, with such a fragile economy and global markets on tenterhooks, the Fed needs quiet competence, not braggy brilliance. So Yellen is, indeed, a better choice to lead the Fed.
That said, Summers appears to be nearly a lock for the position. But with so many economists and Fed-watchers screaming for Yellen over Summers, there must be something about her that President Obama isn’t seeing. If the president detaches himself from foregone conclusions and looks inside himself, he might find himself pulled in another, less obvious direction. And maybe he’ll decide to pick Yellen — the one everyone in the theater is rooting for.